How does the seven-pay rule work for VULs?
Answers:
It is similar for all cash value life policies:
7-Pay Premium test:
The premium, based upon guaranteed mortality, guaranteed interest and with no expenses which with seven level annual payments endows the insurance policy at the maturity age. If during the first seven years of a contract the premiums paid into the contract exceed the sum of the 7-pay premiums, the policy will be defined as a Modified Endowment Contract, unless the premium is withdrawn by a stipulated time period. The 7-pay premiums were created when the TAMRA tax law came into effect.
7-Pay Annuity Factor test:
The number by which existing cash values are divided for MEC testing purposes when doing a 1035 exchange or material change. The 7-pay annuity factors were created when the TAMRA tax law came into effect.
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